July 14, 2010

Emergency/Security Fund—Start Small, Think Big

Beefing up your emergency fund isn't as hard as you might think. The strategy is to start small. The payoff is priceless: a healthy financial picture for you and your family.

So how do you go from $600 in savings to six months of living expenses? Change your mindset, and change a few habits.

One question that pops up frequently is, "How can I build an emergency fund when I'm trying to pay off my debts?"

If you're starting from scratch with your emergency fund, build it up to one or maybe two months of living expenses, and then accelerate credit card payments above the minimum payments required. Once you have paid down your debt, go back and boost payments to your emergency fund so you don't go into debt again.

Here are six ways to boost your emergency/security fund and change savings habits for life:

Treat savings as a bill. Figure out what you can afford to save each month and stash away $75, $50, $25, or even $10 a month. No matter the amount, it adds up, and it's habit-forming. As your situation improves, increase the amount.

Round up. Let's say your monthly utility payment is $76.26 year-round. Budget for $80. If your mortgage payment is $967.89, budget for $1,000. These amounts make budgeting easier, and you'll have a buffer at the end of the month to apply to your emergency fund.

Live one raise behind. Budget using your old income and apply the extra amount to your emergency fund.

Automate it. If it's not in your wallet or your checking account, you're less likely to spend it. Use automatic transfers to savings. Out of sight, out of mind, but you know it's there if you really need it.

Think of it as a freedom fund. If you can't find that initial "spark" to get started, ask yourself how you'd pay your bills if you got a pink slip tomorrow, or if your car needed major repairs. If you know the money is there when you need it, the burden of worry is lifted.

Remember: The professionals at TCU are ready to help with all your savings needs. Call us at 800-552-4745 to set up short-term and long-term savings vehicles that fit your needs.

Comments

You can follow this conversation by subscribing to the comment feed for this post.

A lot of specialists say that mortgage loans help people to live the way they want, because they are able to feel free to buy needed things. Moreover, some banks offer consolidation loan for young and old people.